Economics/Macroeconomics

QuestionQUESTION: From domestic point of view,India embassy in America is a part of domestic territory of India.I want to know that from national point of view,is Indian embassy in America is part of India or will it considered as 'Abroad'?plz also give reasons in support of your answer.

ANSWER: Dear Hemlata:

Thank you for sending in a clarification about your question.
Truly, the precinct of the Indian embassy at 2107 Massachusetts Avenue, N.W., Washington D.C., U.S., is American land, but diplomatically –as long as Delhi and Washington continue to remain in internationally recognized diplomatic terms –the area within this old-fashioned building is the legally established abode under Indian laws and regulations. Theoretically, this precinct is part of India as much as U.S. embassy in New Delhi is American property. To India, it is part of India but indeed “abroad.” Because cut-off of diplomatic ties will render it null and void as “part of India.”

From national point of view, therefore, Indian embassy in the U.S. is part of India. Anything produced (suppose something is produced) within this area belongs to the national income of India. Not only that, but also if the employees there legally earn something, that all belong to Indian national income. Suppose Nirupama Menon Rao goes to Harvard, delivers some lectures on English literature, and receives some remuneration. This remuneration is to be included in Indian national income, even though that is included in American Gross Domestic Product.
However, 2107 Massachusetts Avenue is part of the domestic territory of America. Hence whatever income is generated out of it (and, say, eventually transferred to India) actually belongs to the Gross Domestic Product of the U.S. Even Mrs. Rao’s remuneration, whether she spends that in the U.S. or takes back to Kerala, is in fact the GDP of the U.S., quite the same as all American earnings in India belonging to American national income but to India GDP.

Let’s get back straight to your original question. Ford producing cars in Australia generates Australian GDP but American GNP, and Ford generating income at Detroit is of course American GDP and American GNP. But Toyota’s income in the U.S. is American GDP but Japanese GNP.
I hope I have been able to make myself clear. Should you have any further clarification needed, please do not hesitate to get back to me: I shall try to sort that out. I wish you best of luck in your pursuit for acquisition of knowledge.

[By the way, please also let me know if you are comfortable with advanced mathematics for answer to your second question –that’s a beautiful question, but some mathematics is needed.]

---------- FOLLOW-UP ----------

QUESTION: Thanks for your detailed clarification for my doubt.
I have one more doubt in this regard.Like Indian embassy in America, is Indian company and Indian banks also a part of domestic territory of India?If not then plz give reasons?

AnswerDear Hemlata:

No, no Indian company in the U.S.--including, of course banks, retail stores, manufacturing units, and the like (since all these come under the purview of "company," in the context of business) -- is part of the domestic territory of India. Wherever in the U.S. these firms are established, such precincts are part of domestic territory of the U.S. These firms may even buy these plots of land, but they do remain parts of U.S. domestic territory. If they roll up, and reach back to Mumbai or Calcutta, the land remains under American ownership. That is another reason why all their income [what you see in their income statements] are the gross domestic product of the U.S., even though these are gross national product of India.

The same applies, somewhat differently, with Indian embassy in the U.S. Diplomatically, the Indians occupy American territory, and that is legally perceived as Indian domestic territory AS LONG AS THE EMBASSY REMAINS THERE. If Ambassador N. Rao with her entourage were to vacate the present precinct and occupy another, that original precinct becomes void under Indian authority, and the new location comes into force, with all acceptable diplomatic immunity granted to the Indian government.

Internationally, diplomatic zones, such as Indian embassy in Washington, are considered belonging to the governments of the embassies/high commissions as long as diplomatic ties between such nations are in operation. This is special concession in terms of international convention.

This, however, does not apply to any other business operations. For example, ICICI in the U.S. will not be treated standing on Indian domestic territory such as ICICI in Mumbai.

Expertise

It appears some students in this website are confused about elasticity of demand and the slope of the demand curve when they are trying to figure out why rectangular hyperbola comes up in case of unitary demand curve. First, they don't know that RH can be depicted in a positive quadrant of price,quantity plane. Secondly, they make the mistake that the slope of RH is constant at -1. Two points could help them: first, e=1 at each and every point of the RH, because the tangent at any point shows lower segment=upper segment (another geometric definition of e); yet slopes at different points,dQ/dP, are different; second, e is not slope but [(Slope)(P/Q)]in absolute terms. Caveat: only if we measure (log P) along the horizontal axis and (log Q) up the vertical axis, can we then say slope equals elasticity --in which case RH on P,Q plane is transformed into a straight-line demand curve [with slope= -tan 45 deg] on (log Q),(logP) plane, and e= -d(log Q)/d(log P). [By the way, logs are not used in college textbooks --although that is helpful in econometric estimation of elasticity viewed as an exponent of P, when demand equation is transformed into log-linear form.] I have not found the geometrical explanation I have given in any textbook followed in undergraduate and college classes in Canada (including the book followed in a university where I taught for a short time and in the book followed in George Brown College, Toronto, where I teach.

Experience

About 11 years' teaching economics and business studies, and also English, history and elementary French.Practical experience in a development bank, working with international donor agencies like the World Bank and the ADB. Experience in free-lance journalism, including Canada's "National Post."

PublicationsMany articles and editorials, on different subjects, in English newspapers.
Recently an applied Major Research Paper, based on a synthesis of the Solow growth model and the Lewis two-sector model, has be accepted by Ryerson University, Toronto. Professors Thomas Barbiero and Eric Cam, Ryerson University, accepted the paper.

Education/CredentialsMaster degree in Interantional Economics and Finance and diploma with honours in Business Administration from Canada.

Awards and HonorsReceived First Prize in an inter-university Literary Contest.